John Paulson'
s Profile & Performance

Profile

John Paulson is the President and Portfolio Manager of Paulson & Co. Inc. Paulson was ranked by Absolute Return Magazine as the 3rd largest hedge fund in the world managing approximately $29bn in merger, event and distressed strategies. Mr. Paulson received his Masters of Business Administration with high distinction, as a Baker Scholar, from Harvard Business School in 1980. He graduated summa cum laude in Finance from New York University's College of Business and Public Administration in 1978. Prior to forming Paulson in 1994, John was a general partner of Gruss Partners and a managing director in mergers and acquisitions at Bear Stearns.

Investing Philosophy

John Paulson, a former mergers and acquisitions banker, established his firm as a merger arbitrage hedge fund manager, seeking to make money from situations when one public company announces plans to take over another. Merger arbitrage hedge funds primarily study equity markets, but they also research the market for credit default swaps, a form of insurance that starts paying out as soon as a credit security falls in value.

Over the past month, GuruFocus released its newly developed Interactive Charts. We are still improving the chart functions. Today the chart was featured by Barron’s Electronic Investor column. Here is the link to the Barron’s article. Read more...

I have been personally involved with several positions in U.S.-listed Chinese companies and have suffered quite badly from those positions. And recently the report published by Carlson Block targeted one of the biggest Canadian-listed Chinese companies in the forestry field — Sino-Forest (TRE). After the report was released, the stock, which opened at $18, immediately was brought to under $2.5. And one big hedge fund took a hit: Paulson and Co. of John Paulson, which had a holding of 34.7 million shares in Sino-Forest, might have encountered a loss of more than $500 million on that position. Read more...

It is very important before people make quick judgments that they understand one thing; this article is not a criticism of John Paulson. John Paulson is far smarter than me, and a much better investor, there is simply no comparison. However, John Paulson seems to be mistaken about Bank of America and recently admitted this. Mohnish Pabrai stated at the Value Investing Congress that you can learn a lot from great investors’ mistakes. This is what this article attempts to do. Read more...

In a short span of time, John Paulson catapulted to the status of one of the most successful investors in history. He made an unprecedented $3.7 billion in one year in 2007 foreseeing the subprime debacle and earned massive returns on several other bets in recent years. His ability to achieve such success while the majority of the investment world cratered has left many investors asking how he did it and what they could learn from him. In his 2010 investor letter, he broadly explained that his firm made billions by “anticipating market events before they are generally recognized.” Read more...

How John Paulson Made His Fortune?

In a short span of time, John Paulson catapulted to the status of one of the most successful investors in history. He made an unprecedented $3.7 billion in one year in 2007 foreseeing the subprime debacle and earned massive returns on several other bets in recent years. His ability to achieve such success while the majority of the investment world cratered has left many investors asking how he did it and what they could learn from him. In his 2010 investor letter, he broadly explained that his firm made billions by “anticipating market events before they are generally recognized.”

Risk Arbitrage

Before the events that would make him legendary, Paulson was a successful hedge fund manager focusing on risk arbitrage. His arbitrage funds are his oldest, dating back to 1994, and their track record shows that they resisted economic downturns and returned above average rates over the long term (approximately 17% compared to 10% of the S&P 500). His first fund had only one down year since its inception in 1994. By the end of 2004, Paulson & Co. managed $2.9 billion.

In a 2003 interview with Hedge Fund News, he said that in risk arbitrage his method to outperform the merger arbitrage index was to minimize drawdowns from deals that break, by weighting portfolio to deals that could receive higher bids, by focusing on unique deal structures which offer the potential for higher returns and by occasionally shorting the weaker transactions.”

Subprime

The first banner year for Paulson occurred in 2007. As early as 2005, he began to recognize the trouble with the mortgage industry. Banks were offering mortgages – often at adjustable rates – with few restrictions or credit requirements; when the rates went up and people could no longer pay, they would have to refinance or default. The loans were based on the presumption that housing prices would continue to increase. Paulson told the Financial Crisis Committee in 2010 that when he recognized that home prices ceased going up, he began buying securities against low-graded loans likely to default.

Mortgage dealers told Paulson that the mortgages were safe because home prices had never declined on a national scale since the Great Depression. “Our opinion was [home prices] were overvalued and they were going to correct and that the quality of mortgages was very poor, and the losses would likely be substantial,” Paulson said. By June 2006, he set up a fund for credit default swaps – a form of insurance which would pay him if people could not pay their loans – to capitalize on the fallout.

By February of 2007, before the credit crisis actually hit, his return soared to 66%. By the end of 2007, his firm had made $15 billion.

Shorting Financials (2008)

In early 2008, he even made money as financial institutions related to the mortgage backed securities collapsed. He did it primarily by shorting stocks in some of the world’s largest financial institutions, betting they would fail. He shorted Fannie Mae, Freddie Mac, Barclays (BCS), Royal Bank of Scotland (RBS) and Lloyds TSB (LYG). By November of 2008, his firm had $36 billion assets under management.

Financial Recovery (2009)

As he profited when the financial sector fell apart, so he profited as it began to recover in 2009. In a speech at a hedge-fund seminar in Tokyo, Paulson called distressed assets in the U.S. “the best opportunity in a lifetime.” He formed a new fund called the Paulson Recovery Fund in 2008, making investments, primarily in the financial sector, that would appreciate as the economy improved. He also deemed the consumer staples, pharmaceutical and health industries as attractive options.

In Paulson’s 2009 investor letter, he said the biggest challenge to performance was picking the right security and the right entry point. “Many investors have tried to buy at what they thought was the bottom but to date almost every investor that has bought financial equity securities has lost money,” he wrote.

Paulson & Co. followed approximately 70 banks in 2009, analyzing them based on need for further equity, core earnings forecasts, estimated losses and projected capital deficiency. They then projected earnings per share that would help them forecast future prices. The Paulson Recovery Fund had a return of 25.49% in 2009.

His best returns in 2009 came from his Credit Funds, which were up 28.45% through November, beating the industry average of 13.6%. He made most of the money in that fund through buying an assortment of cheap loans and bonds and selling them for a profit.

Gold (2010)

In 2009, Paulson increased his investment in the gold sector. He created the Paulson Gold Fund in April 2009, and five gold mining stocks comprise 14% of his firm’s portfolio. In the first quarter of 2009, he purchased 31,500,000 shares of SPDR Gold Trust (GLD) at $89.56 per share. As of April 2011, GLD stock has risen 63% to approximately $133 per share.

His second largest gold holding is AngloGold Ashanti (AU) which comprises 7.11% of his portfolio. As of Dec. 31, 2011, he owns 40,949,437 shares. He first purchased shares of AngloGold in the first quarter of 2009 at approximately $30, and the share value has risen 64.5% since then.

He is also buying into gold-related companies. Gabriel Resources (GBU), of which he owns over 19%, is the largest potential gold mine in Europe. Gabriel Resources is an “impaired” gold company in that it has been involved in a lengthy process to obtain environmental permits and expects that it will not be until 2014 that everything will be in place to actually begin mining. But the company’s problems sent its stock price down. Paulson first bought the stock at around $2 per share in the first quarter of 2009. As of April 2011, it has increased 233% to $7.22 per share.

Paulson’s gold funds debuted with an over 35% net return. Paulson & Co. attributed the return to their “exposure to production, development, exploration gold mining shares and the rising value of derivatives.”

Gold prices have risen over 131% in the last five years. In 2010 it leaped almost 30%, and his investment paid off even better than his subprime bet in 2007: He made $5 billion. However, in the first quarter of 2011, his gold funds have lost 1.26%.

Gold is a limited commodity that retains consumer´s purchasing power even under inflationary economies. The advantages are that gold is not at the mercy of government policy so it cannot be easily issued or mined. Additionally, it is used to hedge, so it is a currency hedge, an inflation hedge and, most importantly, a diversification tool in your portfolio. More...

Hotchkis & Wiley, a Los Angeles-based investment firm, has been successfully managing portfolios for more than 30 years. In 2013, its investment advice yielded a 39.95% return for its clients, more than double its performance in 2012. More...

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John Paulson (Trades, Portfolio)’s hedge fund Paulson & Co. was founded in 1994 and has $22.8 billion in assets under management as of Jul 2014. The fund focuses primarily on event-driven arbitrage situations. Paulson’s top strategies, the Advantage and Advantage Plus funds, lost 4.8 percent and 3.9 percent this year through August, the New York Times reported. More...

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A great way to get new investing ideas is to follow the investing gurus. Real-Time Picks are recent filings with the SEC in relation to a single holding that has either been either initiated, added to, reduced, or sold out. 13G filings indicate a passive position while 13D filings indicate an activist position. Form 13Fs disclosing end of quarter portfolio are due within 45 days after the end of the quarter. Stay tuned as they come in and are updated at GuruFocus. Here are the most recent of the 13D and 13G filings from the gurus. More...

In this article, let´s take a look at a possible deal in a $1 trillion global Media industry, where a few weeks ago Twenty-first Century Fox (FOXA) confirmed in a statement that its offer for Time Warner (TWX) had been rejected. More...

In this article, let´s see the last bet of John Paulson (Trades, Portfolio), the hedge fund manager who made a fortune using credit default swaps to bet against the housing market in the 2008 financial crisis. This time he bought more shares of Mallinckrodt PLC (MNK), a $4.09 billion market cap company, which is a global specialty pharmaceuticals company. More...

In this article let's take a look at Ray Dalio (Trades, Portfolio), the founder and majority owner with a 84% stake in Bridgewater Associates Intermediate Holdings (BAIH), the hedge fund that manages $150 billion in assets under management. Bridgewater Associates operates as an international, employee-owned hedge fund manager. It provides its services to pension and profit sharing plans, pooled investment vehicles, corporations and governmental entities. Since its inception in 1975, Bridgewater has generated net gains of $35.8 billion and that success made this guru the 84th richest person in the world, according to Forbes. More...

User Comments

Now that you have explained the mistake ... why isn't the position now showing on his list of latest trades? What do you know about the timeframe during which Paulson acquired his positions? What do you know of the average price during that period of time (and, therefore, his approximates average cost)?

It was an incredible mistake of gurufocus
Paulson & Co Inc., the hedge fund run by John Paulson (Trades, Portfolio) (Trades, Portfolio), acquired 61,384,234 sharesor 19.35% of Overseas Shipholding Group Inc. (OGSRB),(OGSBW) Paulson hedge fund disclosed the 19.35% stake in a 13G Filing with the SEC.

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